RTI exposes irregularities in SL water contracts involving Chinese SOEs

• PMAC calls for accountability and urgent probe into unsolicited bids and inflated costs

The People’s Movement Against Corruption (PMAC) yesterday called for an urgent and comprehensive Government investigation into a pattern of large-scale corruption and irregularities concerning the awarding of millions of dollars in contracts to Chinese State-owned companies for projects under the National Water Supply and Drainage Board (NWSDB). 

It said that revelations from a Right to Information (RTI) application filed by the PMAC have exposed a web of questionable practices and irregularities – including unsolicited bids, inflated costs, and significant financial disparities, primarily involving Chinese State-owned entities (SOEs).

The PMAC statement is as follows:

Documents disclosed following the RTI Application by PMAC revealed that from 2013 to date, China Machinery Engineering Corporation (CMEC), China Harbour Engineering Company Ltd. and China Geo Engineering Company was contracted for projects that were financed by the Sri Lankan Government, the Asian Development Bank, Agency for French Development (AFD) and China Development Bank. While some of these projects are currently ongoing, it has been revealed that several contracts were awarded at significantly inflated prices compared to initial estimates.

Further examination of the disclosed documents revealed a questionable joint venture arrangement for two major contracts with a locally registered entity, raising questions about the necessity of a local intermediary. 

Both the $ 70 million Ambatale Water Supply System Improvements and Energy Saving Project, funded by the French Development Agency (AFD), and the $ 157.43 million Jaffna-Kilinochchi Water Supply and Sanitation Project, financed by the Sri Lankan Government and the Asian Development Bank (ADB), were awarded to CMEC as the lead contractor. In both instances, a relatively unknown entity, Business Promoters & Partners Engineering Ltd., was included as a joint venture partner.

The documents disclosed in the RTI does not specify the role and scope of Business Promoters & Partners Engineering in these large projects. As the role and scope of Business Promoters & Partners Engineering in these substantial projects remain unclear, the PMAC calls the Government to probe into the role of such intermediaries, especially since numerous other large NWSDB projects with Chinese companies were directly contracted without such local joint venture partners.

A central focus of PMAC’s revelations is the Gampaha, Attanagalla, and Minuwangoda Integrated Water Supply Scheme, which serves as a clear example of how procurement procedures were exploited, leading to considerable financial strain for the country. This project, which was initially an unsolicited tender, was ultimately awarded at a cost 34.8 percent higher than its initial estimate.

Documents disclosed from the RTI confirmed that this $ 229.5 million project was awarded to CMEC without any competitive tender process. Funding for the scheme included $ 195.075 million from a loan by the China Development Bank Corporation, with the remaining $ 34.425 million provided as a loan by the Bank of Ceylon. Notably, while CMEC had engaged Business Promoters & Partners Engineering as a joint venture partner in previous NWSDB projects, the available documentation for the Gampaha, Attanagalla, and Minuwangoda project does not indicate or mention any involvement of a local joint venture partner.

An independent probe by PMAC has revealed a significant disparity between the NWSDB’s original estimated project cost of $ 172 million and the final contract price of $ 229.5 million for the Gampaha, Attanagalla, and Minuwangoda Integrated Water Supply Scheme.

Despite the Standing Cabinet Appointed Procurement Committee (SCAPC) noting a considerable deviation in costs by 2012, the Cabinet proceeded with the higher-priced award. Adding to concerns, CMEC’s lack of experience and expertise in water projects was repeatedly flagged, initially by the Project Assessment Committee (PAC) in 2010, and subsequently by the Auditor General’s Department in both 2016 and 2018. 

The Auditor General’s findings specifically attributed the project’s escalating costs to a lack of competition, along with delays and payment irregularities.

The RTI disclosure also highlighted another unsolicited project costing over $ 120 million for the Tambuthegama Water Supply Project, contracted to China Geo Engineering Corporation. The funding for this project includes a $ 102.54 million loan from the China Development Bank and an $ 18.09 million loan from the Bank of Ceylon. 

The RTI disclosure also revealed that the Greater Colombo Water and Wastewater Management Investment Programme was awarded as a joint venture to China Harbour Engineering Company Ltd., and China Geo Engineering Corporation, through an ADB loan amounting to Rs. 13,917 million. 

These projects have come under scrutiny due to questionable procurement procedures and apparent irregularities. The lack of transparency and oversight in awarding these contracts has potentially led to inflated costs, raising concerns about fiscal accountability.

In 2019, a report submitted to Parliament by the Committee on Public Enterprises (COPE) highlighted concerns regarding irregularities and wastage of public funds by NWSDB. The report flagged significant financial irregularities, including a Rs.230 million debit balance written off without Treasury approval and Rs. 5.493 billion in unrecovered contractor advances from 2000-2013, with Rs. 683 million still outstanding as of December 2017.

PMAC demands that the Government immediately launch an independent, forensic audit and criminal investigation into all tenders awarded to Chinese state-owned companies by the NWSDB, particularly focusing on unsolicited bids and projects where costs have escalated without justifiable cause.